9 January 2023
If you are covering this morning’s ONS report on how increases in housing costs impact households, please see the following comment from Karen Noye, mortgage expert at Quilter:
“Today’s report from the Office for National Statistics reveals more than 1.4 million UK households are set to face significant interest rate rises when they renew their fixed rate mortgages this year.
“Those with a fixed rate mortgage coming to an end this year will likely have been shielded from the rise in interest rates so far as they had locked in at a time when interest rates were below 2%. However, this now means they could be facing a significant increase in their monthly payments when they come to renew, and this could rapidly become unaffordable for many people – particularly if they still have a high loan to value. And this is all in addition to eye-watering heating bills and food costs soaring, which will serve to make this winter in particular and the rest of this year difficult for millions.
“ONS calculations show that in the first quarter of this year alone, over 350,000 fixed rate mortgages will have to be renewed. While interest rates have now dipped slightly compared to the highs seen in the aftermath of the mini-budget, they are still significantly higher than the rates the majority will have previously been paying and many will soon feel a real squeeze on their finances as a result.
“Given the high interest rates – many of which still sit around 6% - those looking to refix may well be more tempted to opt for a tracker mortgage rather than fix at the current levels, particularly after Rishi Sunak announced inflation is likely to half this year, which could mean that the Bank of England will not need to continue hiking interest rates.
“Lenders are already tweaking their offerings to reflect this. For example, just last week Halifax relaunched a handful of tracker products aimed at first-time buyers and those looking to remortgage. Its two-year tracker rates for homebuyers range between 4.09 and 4.59 per cent, compared with fixed rates of 5.12 to 5.82 per cent for the same term.
“While borrowers may feel a tracker rate is the better option, it is important that they are aware that tracker rates will likely be impacted by any further Bank of England rate rises and could therefore surpass the fixed rates currently on offer. Ultimately, it is important to seek professional mortgage advice where possible to help you assess what the best option is for your personal circumstances.”
